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Is a UK Bridging Loan for You?

While bridging finance has grown in popularity with borrowers, you may be asking: ‘Is a UK bridging loan for you?’ Here, we will explain more to help you understand what these loans are and what they can be used for.

Firstly, bridging loans can be used for practically any purpose, though they tend to be more popular with property developers and landlords including those who want to buy a property at auction.

That’s because there’s a deadline when buying property with an auctioneer and a bridging finance firm can provide the loan required in days or just a few weeks to complete the purchase.

Bridging loans have proved to be popular with buy to let landlords and developers who can borrow money quickly to bring a property up to a condition that would attract a mortgage.

However, in recent years a trend has been growing among borrowers to use this type of finance in meeting a wide range of needs; some are also viewing these loans as an alternative to mainstream borrowing. Business may use the money to buy stock for a promotion while others may use bridging finance to pay an urgent tax demand, for example.

One reason for this is that banks and building societies have tightened their lending criteria so it’s more difficult to access funding, particularly if your credit history is an issue. Your credit rating is not a problem for many bridging finance lenders since they will loan money against an asset being used as security, usually a property.

UK bridging loans

For anybody considering UK bridging loans then you will need to understand what your exit strategy from this type of loan will be.

For example, if you are buying a property, will you be selling it to repay the lender or hoping to attract a buy to let or mainstream mortgage once you have refurbished it?

This exit strategy is an important undertaking because you will need to know how and when you are able to repay the loan since most lenders will offer a 12-month bridging finance term but there are some firms offering up to two years.

Bridging finance is a popular way to borrow money over the short-term but it can be a more expensive alternative to borrowing from a high street bank, for example.

Another incentive for understanding your exit strategy is to enjoy lower interest rates on the amount you borrow.

This is because a lender will offer cheaper rates for those borrowers who know when they will repay the money and this is known as a ‘closed’ bridging loan.

Repay their bridging loan UK

For those borrowers who may not know how and when they’re going to repay their bridging loan UK, then this is called an ‘open’ bridging loan and will attract slightly higher rates of interest.

However, what rate of interest a lender will charge will vary depending on their own lending criteria and your circumstances.

The value of the property being put forward as security will also have an influence on the amount being borrowed and the rate of interest being charged.

To help potential borrowers, particularly those who have never accessed this type of alternative finance previously, it’s a good idea to use a bridging loan calculator.

Most of the bridging lenders will have this facility on their website and you fill in a few details such as the amount you want to borrow, the term of the loan and the calculator will reveal how much the loan will actually cost.

In addition to repaying the money, there will also be administration charges for completing the loan and an independent surveyor will need to be paid for valuing the property being used as security.

The application process for a bridging loan is straightforward

The application process for a bridging loan is straightforward and quick to complete and while most high street banks will take many weeks or months to complete on a loan, bridging finance can be arranged in just a few hours – if you already have a relationship with the lender.

Otherwise, bridging finance can be completed in just a few days once the surveyor’s work is done and the legal side completed.

There’s no doubt that this can be a complicated process for those who may not understand what bridging finance can be used for and if you want to know whether UK bridging loan is for you, then it’s a good idea to contact the experts at The Bridge Crowd.